Subscribe to our newsletter to receive business tips, learn about new funding programmes, join upcoming events, take e-learning courses, and more.
Take the first step to successfully starting and growing your business.
Join for free)
Posted: Wed 14th Oct 2026
How much is your business worth?
You may only start thinking seriously about that question when an investor shows an interest, a potential buyer gets in touch or you begin planning your exit. But knowing what creates value in your business can be useful much earlier.
A valuation can help you understand how your finances, customers, assets and growth prospects affect the overall strength of the company. It can also highlight areas that may need attention.
Here's how business valuation works and what you can do to get a clearer idea of what your company may be worth.
A business valuation is an assessment of the financial value of a company at a particular point in time.
It considers information such as:
Assets.
Revenue.
Profits.
Cash flow.
Debts.
Customers and future earning potential.
Depending on the method being used, it may also take account of intellectual property, reputation and recent sales of similar businesses.
A valuation is usually carried out for a particular purpose.
You might need one if you're:
Raising investment.
Selling all or part of the business.
Bringing in a new shareholder or partner.
Buying another business.
Planning for succession.
Arranging certain types of finance.
Dealing with some tax or legal matters.
HMRC also has specific rules and procedures covering valuations of shares and assets for tax purposes, so professional advice may be needed where tax is involved.
Even without a transaction on the horizon, looking at business value can be useful. It gives you another way to assess the health of the company and the progress you're making.
Several parts of the business can influence its value. Their importance will depend on what you do and who is carrying out the valuation.
Turnover provides useful information about the size of a business, but potential buyers and investors will usually want to see how much profit it produces too.
Look at your financial performance over several years where possible. Consistent or improving profits can make future performance easier to assess.
Large swings in profitability may lead to more questions. Be ready to explain unusual costs, one-off events or periods of rapid investment.
A profitable business can still experience financial pressure if customers pay slowly or large bills fall due before income arrives.
Healthy cash flow shows that the business can meet its obligations and fund day-to-day operations. Reliable management accounts and cash flow forecasts can help demonstrate that stability.
Debt will also matter. A valuer may examine how much you owe, repayment terms and whether the business can comfortably service its borrowing.
A company with reliable repeat business may be easier to value because there is more evidence of likely future income.
Recurring contracts, subscriptions, retainers and long-term customer relationships can all contribute to this.
Customer concentration is worth watching too. If one customer accounts for a large proportion of sales, losing them could have a serious impact on the business. That risk can affect valuation.
Physical assets can include property, machinery, vehicles, equipment and stock.
Intangible assets may include trademarks, patents, copyright, proprietary technology, customer relationships and the value attached to the brand.
Some small businesses have relatively few physical assets but significant value in their IP, customer base or specialist knowledge.
Make sure you know which assets the business owns and have paperwork showing ownership where relevant.
Your reputation can influence how attractive the business looks to somebody considering an investment or purchase.
Strong reviews, long-standing client relationships, recognised expertise and a clear position within your market may support the valuation.
Evidence matters. Customer retention figures, repeat purchase rates, awards, testimonials and contract renewals can give a valuer something more substantial to assess.
Future opportunities can also influence value.
A buyer or investor may look at your:
Sales pipeline.
New products.
Expansion plans
Opportunities to enter new markets.
For a London business, location may create additional opportunities. A strong customer base in a particular borough, access to specialist talent or demand from particular industries could all influence future prospects.
Any forecasts should be realistic and supported by evidence. A detailed sales pipeline is far more useful than a general claim that the company has room to grow.
Valuations are also affected by circumstances outside the business.
Interest rates, consumer confidence, investor demand, economic conditions and trends within your sector can influence what buyers are willing to pay.
Two similar companies valued at different times may therefore receive different figures.
There are several recognised methods. A professional valuation may use more than one before reaching a final figure or valuation range.
An asset-based valuation considers the value of the assets owned by the company, then takes account of its liabilities.
In simple terms, you work out the value of what the business owns and subtract what it owes.
This approach can be useful for companies with significant physical assets, such as manufacturers, property businesses or some retailers.
You will need current values for assets rather than relying automatically on their original purchase price. Machinery may have depreciated while property may have increased in value.
Intangible assets can make the calculation more complicated. Brand value, intellectual property and goodwill may not appear clearly on your balance sheet.
Many established businesses are valued using their profits or earnings.
A common approach is to calculate a maintainable level of annual earnings and apply a multiple.
For example, if maintainable earnings were £100,000 and an appropriate multiple were four, this would indicate a value of £400,000 before any further adjustments.
Choosing the multiple is the difficult part. It can vary according to sector, business size, growth prospects, risks and prevailing market conditions.
A company with predictable recurring income and low customer concentration may attract a different multiple from another company with similar earnings.
When businesses are being sold, normalised earnings are often used. This involves adjusting reported profit to remove unusual or one-off items so the figures give a clearer picture of ongoing performance.
Some businesses are valued using revenue. Annual revenue is multiplied by a figure based on the sector and type of company.
This method may sometimes be used for younger businesses where profits are still developing. It is also common in certain industries where revenue multiples are widely used.
Treat it carefully. Two companies with the same turnover can have very different costs and levels of profitability.
You can also look at prices paid for similar companies. This can provide a useful indication of how the market currently values businesses in your sector.
Finding reliable comparisons can be difficult for smaller private businesses because sale prices and financial information are not always public.
Differences in location, size, customer base, profitability and growth prospects also need to be considered.
Discounted cash flow, usually shortened to DCF, estimates the present value of the cash a business is expected to generate in future.
You start with forecasts for future cash flows. A discount rate is then applied to reflect factors such as risk and the fact that money received in future has a lower present value.
DCF can be useful for established companies with reasonably predictable cash flows. It relies heavily on forecasts and assumptions, so small changes in those assumptions can have a noticeable effect on the final figure.
For most small business owners carrying out an initial review, you don't need to calculate a detailed DCF yourself. Understanding the principle is usually enough.
You can make the valuation process much easier by keeping good information throughout the year.
Start with your finances. Keep bookkeeping records up to date and make sure you can easily produce your profit and loss account, balance sheet and cash flow information.
Track the figures that matter most to your business too. These might include gross margin, recurring revenue, customer retention, average order value or the size of your sales pipeline.
Keep a record of significant business assets. Include property, equipment, stock and intellectual property where relevant. Make sure contracts, licences, trademarks and other important documents are easy to find.
Review your sources of income. A potential buyer or investor will want to understand how predictable that income is and how dependent it is on individual customers.
Check that important legal, tax and compliance matters are in order. Review contracts with employees, suppliers, customers and landlords. Check that tax filings and Companies House information are up to date where applicable.
Operational problems can affect value too. High costs, inefficient processes or heavy dependence on the owner may make the business harder to transfer to somebody else.
A simple question can be useful here: what would happen if you stepped away from the business for a month?
If customers, staff or important processes depend entirely on you, consider documenting key procedures and giving other people more responsibility over time.
You don't need a formal valuation every year. But carrying out a regular review of the factors that influence value can be a useful part of business planning.
Perhaps your revenue has increased, but margins have fallen. You may discover that one customer now represents 35% of sales. Your recurring income may have grown steadily, or the business may have become less dependent on you personally.
These changes tell you something useful about the company.
You can then set specific goals. You might aim to increase recurring revenue, improve gross margin, reduce customer concentration or strengthen your management team.
Review those areas again six or 12 months later.
Over time, you will build a clearer picture of the business you've created and the areas that have the greatest influence on its value.
And when an investor, lender or potential buyer eventually starts asking questions, much of the information they need will already be available.
For a more formal valuation, particularly one connected with a sale, investment, tax matter or shareholder agreement, speak to an accountant, corporate finance adviser or valuation specialist. They can help you choose an appropriate method and test the assumptions behind the figures.
At Grow London Local, we understand that you’re passionate about your small London business. That’s why our website is packed with resources tailored to you. Find more support
